Equilibrium political budget cycles

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1、NBERWORKINGPAPERSERIESEQUILIBRIUMPOLITICALBUDGETCYCLESKennethRogoffWorkingPaperNo.2428NATIONALBUREAUOFECONOMICRESEARCH1050MassachusettsAvenueCambridge,MA02138November1987SupportfromtheLyndeandHarryBradleyFoundationisgratefullyacknowledged.TheresearchreportedhereispartoftheNBER'sresearchprograminFina

2、ncialMarketsandMonetaryEconomics.AnyopinionsexpressedarethoseoftheauthorandnotthoseoftheNationalBureauofEconomicResearch.NBERWorkingPaper#2428November1987EquilibriumPoliticalBudgetCyclesABSTRACTPriortoelections,governments(atalllevels)frequentlyundertakeaconsumptionbinge.Taxesarecut,transfersarerais

3、ed,andgovernmentspendingisdistortedtowardshighlyvisibleitems.The"politicalbusinesscycle"(betterbethoughtofas"thepoliticalbudgetcycle")hasbeenintensivelyexamined,atleastforthecaseofnationalelections.Anumberofproposalshavebeenadvancedformitigatingelectoralcyclesinfiscalpolicy.Thepresentpaperisthefirst

4、efforttoprovideafully-specifiedequilibriumframeworkforanalyzingsuchproposals.Apoliticalbudgetcycleariseshereviaamultidimensionalsignallingprocess,inwhichincumbentleaderstrytoconvincevotersthattheyhaverecentlybeendoinganexcellentjobinadministeringthegovernment.Effortstomitigatethecyclecaneasilyprovec

5、ounterproductive,eitherbyimpedingthetransmissionofinfor-mationorbyinducingpoliticianstoselectmorecostlywaysofsignalling.Themodelalsoindicatesnewdirectionsforempiricalresearch.KennethRogoffEconomicsDepartment1180ObservatoryDriveUniversityofWisconsinMadison,WI53706(608)-263—38761I.IntroductionEconomis

6、tsandpoliticalscientistshavetriedforsometimetounderstandtheapparentcoincidenceofmacroeconomicpolicycyclesandelections.Butalthoughresearchershavedetectedsomenotableempiricalregularities1(parti-cularlyconcerningpre—electiontaxcutsandgovernmentspendingincreases),progresshasbeenimpededbythelackofasolidt

7、heoreticalfoundation.Thepresentpaperisanefforttoremedythissituation.Myanalysisisbasedonanintertemporalequilibriummodelinwhichbothvotersandpoliticiansarerational,utility-maximizingagents.2A"politicalbu